Moneymax Coachhttps://blog.moneymaxcoach.com
Just another WordPress weblogThu, 15 Feb 2018 17:30:07 +0000en-UShourly1https://wordpress.org/?v=4.9.3Older People in Housing-related Povertyhttps://blog.moneymaxcoach.com/2018/02/older-people-in-housing-related-poverty/
Thu, 15 Feb 2018 17:30:07 +0000https://blog.moneymaxcoach.com/?p=2458The Government has recently released its report ‘Stocktake of New Zealand Housing’ which looks at homelessness and housing-related poverty. Undertaken by a team of independent experts, this report brings into the open the consequences of falling home ownership. A significant cause is the under-supply of housing; the number of houses being built has fallen behind the rate of population increase. This has pushed up house prices and rents.

In 2013, less than 65% of households owned their home. This is the lowest rate of home ownership since 1953. Importantly, the declining home ownership rates are affecting people entering retirement, and the number of retirees who are renting or still have a mortgage is increasing. For older people renting, security of tenure is an important issue. With a periodic tenancy, landlords can give tenants 90 days’ notice without having to give a reason. Many tenants are forced to move when the property they are renting is sold. Statistics show that around 30% of tenants who move do so because their landlord has sold.

The proportion of older people living in a debt free home has fallen to its current level of 72%. This is a very worrying trend. The framework for NZ Superannuation was set with an assumption of a high level of debt-free home ownership amongst retirees. This is no longer the case, and there are increasing numbers of retirees receiving an accommodation supplement to help cover the costs of rent or mortgage repayments. Since 2012, the number of superannuitants receiving an accommodation supplement has risen by 22%. The supplement is generally not enough to cover the rent or mortage payments in full and hence many retirees are suffering from housing-related poverty. Sadly, much of the future demand for housing assistance is expected to come from older tenants.

]]>The Four Pillars of Retirement Incomehttps://blog.moneymaxcoach.com/2018/02/the-four-pillars-of-retirement-income/
Thu, 01 Feb 2018 21:59:33 +0000https://blog.moneymaxcoach.com/?p=2453There are several different ways to generate cash from an investment portfolio to top up your retirement income. Many retirees make the mistake of confusing cash with income and this leads them to invest in interest-bearing investments such as bonds and term deposits to supplement their superannuation. Yet interest is only one of the ‘four pillars’ of retirement income. These four pillars are:

Interest. The advantages of investing in interest-bearing investments are that you know with certainty what your income will be and, providing you invest in securities with a good credit rating, there is little risk to your principal. However, interest is taxable and returns are low.

Dividends. There are a number of listed shares which have a high dividend pay-out at a consistent rate. A carefully constructed share portfolio can produce dividends which provide at least as good a return as bank interest, with the added advantages of imputation credits and the possibility of capital gain over the long term.

Capital gains. For most long term investors, capital gains are not taxable. A diversified portfolio of shares can produce a high return over the long term. Cash is generated by simply selling off holdings from time to time. You will need to reserve some of the capital gains for times when the markets drop.

Principal. During the course of your retirement you should plan to reduce your investment capital. If you don’t spend it your kids will! One way to do this is to purchase a variable annuity, or you can simply plan to cash up a percentage of your principal each year. A rule of thumb is to draw down 5% per year.

With interest rates at a low level, it is important to consider other ways to generate cash which can potentially provide a higher return.

]]>Silver Splittershttps://blog.moneymaxcoach.com/2018/01/silver-splitters/
Fri, 26 Jan 2018 01:14:01 +0000https://blog.moneymaxcoach.com/?p=2449It is common for two people to stay in an unhappy relationship for the sake of children and because they can’t afford to split their assets and income in half. But is seems that now, the number of people who divorce later in life is on the increase. Known as silver splitters, they are over 50, the kids are off their hands, they have a home with little or no debt and they are looking for freedom and independence. There comes a point when two people may suddenly realise they have nothing in common any more if they have not invested in their relationship. While a silver split can be mutual, more often it is triggered by one partner, leaving the other devastated both emotionally and financially. Women can be particularly vulnerable because of their lower future earning potential and higher life expectancy. Perhaps they have taken breaks in their careers to bring up children, or chosen a career path with pay inequity or low remuneration. A property division should take these factors into account but it doesn’t always.

Splitting late in life can be complicated because very often there are significant assets involved, as well as a variety of legal structures such as family trusts, companies and partnerships. Superannuation schemes and pensions also need to be taken into account. Sometimes one partner will attempt to hide assets or income. Dealing with this level of complication at a time when emotions are running high is not easy.

There is little time to recover from a late split before retirement and silver splitters should ensure they get their full entitlement under the Property Relationships Act, taking into account future earning potential. This is no time to allow guilt or a desire to avoid confrontation to take precedence over your financial future.

]]>Simplify and Automatehttps://blog.moneymaxcoach.com/2018/01/simplify-and-automate/
Fri, 19 Jan 2018 00:52:38 +0000https://blog.moneymaxcoach.com/?p=2444Holiday time is a great time to declutter. Just as cupboards and wardrobes fill up with unused or out of date items, your financial affairs can become cluttered. Whether it is bank accounts, credit cards, store cards, loyalty cards, loans, investments or insurance, you can easily get to the point where you have so much going on you lose track.

There are two key principles of good financial management which allow us to declutter our finances and free up more time to enjoy life. These principles are simplicity and automation.

Simplicity comes from having the minimum number of financial arrangements in place to effectively cover your financial needs. Having too many bank accounts means you may be paying unnecessary fees and also makes managing your money more difficult. Take a look at all your credit cards and store cards. With multiple cards, your total debt can easily get out of hand. Investments should also be reviewed. If you have small holdings that you have owned for a long time consider whether you should continue to own them. Over time it is easy to accumulate a number of different insurance policies which may no longer suit your requirements. Review these with your insurance broker.

Automate your banking by setting up regular payments into your savings account and paying your bills by automatic payment or direct debit. Set up your online banking so you can easily see the balances of all your accounts and arrange to have your bank statements sent to you electronically to reduce your paperwork.

Finally, declutter your paperwork. Put all your important documents together in a safe place and throw out any unnecessary paperwork. Record important details such as policy numbers or account numbers in case your documents are lost and make sure this information is held securely.

]]>Goal Setting Secretshttps://blog.moneymaxcoach.com/2018/01/goal-setting-secrets/
Fri, 12 Jan 2018 01:17:10 +0000https://blog.moneymaxcoach.com/?p=2441Having goals focuses your mind on what you need to know and do to be successful, so that you can make the most of your life. The start of a new year is great time to set goals. However, if you want to be able to achieve your goals there a few secrets in how you set them.

Take time to plan your goals. Find a quiet place free of distractions where you can really focus on what you want to achieve for the year.

Start by looking at what you value in life. Do you value family and friends? Your career? Your sports or hobbies? Learning? Having fun? Your values should underpin your goals. If your goals and values are not aligned you are much less likely to succeed.

Make sure your goals are balanced. Cover all the areas of your life that are important to you – family, relationships, work, community and your own personal needs.

Deal with short term ‘stuff’ that might get in the way of achieving your long term goals. For example, if you have a big credit card debt, you will need to pay that off before you can start saving for an overseas trip.

Goals should be precise, clear, and meaningful. Set your goals too high and you will quickly lose motivation if you don’t succeed. Make your goals too easy and won’t be motivated either. You are much more likely to achieve your goals if you write them down and if you break them down into small steps so you can measure your progress.

There’s one significant difference between people who succeed in life and those who struggle; their ability to set goals and achieve them. To have what you want in life, you can’t just sit back and expect it to happen.

]]>Get Rid of Money Guilthttps://blog.moneymaxcoach.com/2018/01/get-rid-of-money-guilt/
Thu, 04 Jan 2018 22:48:42 +0000https://blog.moneymaxcoach.com/?p=2435The New Year is a chance to make resolutions to eat healthier food, exercise more often and manage money better. Just like diet and exercise, money is something that people feel often guilty about. Opening your credit card bill after Christmas and the New Year sales can certainly create the feeling that you have done something wrong or spent money you weren’t supposed to. However, while an initial rush of guilt can trigger desire to change money behaviours, New Year’s resolutions get forgotten about as life settles back to normal. There is an easy way to avoid feeling guilty about money and to keep on track with money goals.

At the beginning of every year, assess your financial position. Make a list of your assets (house, bank deposits, investments) and your liabilities (debts). Your net worth is the difference between your assets and your liabilities and ideally it should be increasing each year.

Now do a simple budget. Set up an automatic transfer each payday into a savings account for your financial goals, starting with a small, achievable amount. With what is left, work out how much you need to cover your financial commitments and your living costs. The remainder is your ‘fun money’ which you can happily spend on whatever you choose without feeling guilty. Keep it in a separate account.

Make a date with your money to keep yourself on track. Reviewing your finances should not just be an annual event. Diarise a review meeting at least four times a year to see how you are tracking against your budget and your goals. If you have a partner, do this together.

Save before you spend, give yourself permission to spend a budgeted amount of money on whatever you want and regularly review your budget to have a guilt-free year.

Starting out in life after school or tertiary education is an exciting milestone. It is one of the best times in life, with a future full of potential opportunities, without the responsibilities of dependent children to support and with few financial commitments. Anything is possible at this stage of life. However, it is also a critical time as making the wrong financial decisions when starting out can have long term consequences.

In the early years there is usually a bit of catching up to do, particularly for tertiary students. After a few years of living frugally, a new wardrobe of work clothes is a necessity, as well as perhaps a car, and furniture for a flat. Big expenses such as dental treatment and new glasses that were deferred in student days can’t be put off any longer. For the first few months it is difficult to save while all this catching up is going on. There is a danger that with all this spending, saving never gets to be a habit. Here are some tips to avoid making big mistakes:

As soon as you start earning, start making a regular automatic transfer into a savings account each pay day, even if it’s just a small amount

Focus on building up savings to cover emergencies and to enable you to pay cash for things you need to buy instead of going into debt

Pay all your bills on time to avoid getting behind and avoid penalties or loss of early payment discounts. Paying by direct debit helps keep you on track.

If you need to borrow money, for example to buy a car, borrow as little as possible and shop around to get the best interest rate.

Getting these basics right will set you on a good path for the future.

Whether you are investing money, setting up a business or gambling on horses, your first consideration, before parting with any money, should be how much risk you can afford to take. Risk is not necessarily the probability of loss – it is the probability that an outcome will be different than you expect. For example, an investment might make a positive return, but a lower (or higher) return than you expected.

There are two aspects to risk that determine how much risk you can take. The first is your tolerance for risk. Some people are naturally risk takers or thrive on the exhilaration of taking a gamble, while others have trouble sleeping at night when outcomes are uncertain. The second aspect to risk is your capacity to take risk. In essence, this is the amount by which the actual outcome can differ from your expected outcome without having a lasting impact on your financial situation. If we put these two aspects together, we get four possible combinations:

Low risk tolerance and low risk capacity. If you are in this category you clearly need to tread a very safe path.

Low risk tolerance and high risk capacity. This combination means you are probably being more conservative than you need to be and may be missing out on opportunities.

High risk tolerance and low risk capacity. This is a danger zone! You are taking risks with money you cannot afford to lose.

High risk tolerance and high risk capacity. Fortunes can be made in this category. You have both the resources and the courage to take risks in exchange for the possibility of a high return.

Understanding your risk tolerance and risk capacity can help guide you to making financial decisions that optimise the balance between risk and return for your particular circumstances.

]]>The Greatest Gifthttps://blog.moneymaxcoach.com/2017/11/the-greatest-gift/
Thu, 30 Nov 2017 23:38:39 +0000https://blog.moneymaxcoach.com/?p=2413Giving to others brings great pleasure and happiness and there is no better evidence of this than the joy of Christmas. However, giving is often loaded with emotion and purpose. We place various meanings on the act of both giving and receiving. In some cases, people give to make themselves feel better – perhaps by absolving themselves of guilt – or as a way of demonstrating love, particularly if they have trouble expressing love in other ways. Receiving a gift can bring about a range of emotions, from joy to indifference to embarrassment. There can be dilemmas around whether to give or not give in certain circumstances. People have expectations about giving and receiving that may sometimes not be met, and this can lead to disappointment or tension. The acts of giving and receiving can be very complex.

This is particularly so when it comes to parents giving to children. Giving can take many forms – from love and affection to tangible gifts and money. Parents who constantly give to their children in many forms often do so as a way of dealing with guilt or making themselves feel as though they are better parents. Constant giving can lead to expectations or even demands from children and, for older children, can create an unhealthy dependency on parents. The greatest gift a parent can give to a child is the ability to be financially independent. How well a child succeeds in life will be as much about financial literacy as it is about education and career. Giving too much to children deprives them of the opportunity to learn to fend for themselves. Parents who are overgenerous may feel as though they are helping their children more than other parents, but in fact their acts of giving can be detrimental. Give, but not too much.

]]>Track Your KiwiSaverhttps://blog.moneymaxcoach.com/2017/11/track-your-kiwisaver/
Thu, 23 Nov 2017 19:24:38 +0000https://blog.moneymaxcoach.com/?p=2392KiwiSaver is an easy way to invest. Your contributions are deducted automatically, along with the contributions from your employer, and every year the Government pays you a tax credit. You could argue that KiwiSaver is a ‘set and forget’ type of investment. However, paying little or no attention to your KiwiSaver is not wise. There is a great deal of variation between providers and between the different types of funds. For younger members, KiwiSaver is likely to be their biggest investment asset by the time they retire. Over the long term even a small difference in the annual rate of return between funds will add up to significant difference in the amount of capital at retirement. Tracking your KiwiSaver is essential to get the best return over time.

The Financial Markets Authority has launched a new online tool called the KiwiSaver Tracker. It is designed to help people understand the relationship between investment risk, investment returns and fees. It shows for the last year and the last five years:

The risk profile, returns and fees for each KiwiSaver fund

A percentage figure for how much of the return is paid to the fund manager in fees

The data shows that KiwiSaver funds with a higher exposure to growth assets (property and shares) have a higher rate of return over a five year period. However, there is no obvious linkage between fees and return. High fees do not necessarily mean a lower net return for the investor; nor do low fees imply a higher net return. The most important decision for KiwiSavers will always be the choice of fund (that is, the weighting of growth assets). Historical net returns after fees are more important than fees when choosing a fund, however past returns are no guarantee of future performance.